In Britain, the Economy, Stupid

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Perhaps it was intense coverage of our own hotly contested Democratic presidential primaries which prompted the American press largely to ignore or downplay the results of elections held in the United Kingdom earlier this month.

Only a handful of America’s newspapers even bothered to mention the U.K vote, in which seats on some 159 local governing councils were up for grabs. Our paper of record, the New York Times, focused most of its coverage on the personality-driven race for mayor of London between eccentric TV personality Boris Johnson and the incumbent and controversial Ken Livingstone--who once compared a newspaper reporter to a Nazi concentration camp guard and said in a speech that he longed “for the day I wake up and find that the Saudi Royal Family are swinging from lamp-posts.”

But although Brits were only voting for local councils, the election bears some striking similarities to ours. In the U.K. as here, a party which has been in office through several national election cycles, Labour, faced an electorate at a time of growing economic worry. England’s long housing boom, which has been at times even frothier than ours, has ended, and foreclosures are rising. A major financial institution recently had to be bailed out by the government. Prices, including the already steep price of gas, are rising, eliciting grumbling among voters who have quickly forgotten their own income gains over the last several years.

Facing these circumstances, Labour took a drubbing, winning just 24 percent of the vote nationwide, because its leaders ignored James Carville’s oft-repeated advice that in tough times, it’s the economy that voters care about. Instead, Labour acted positively stupid about the economy, in the process appearing out of touch with voters by seeming almost indifferent to economic news. It’s a lesson that the Republican Party’s looming presidential nominee, John McCain, who occasionally appears as if the economy is the last thing on his mind, can learn from.

To understand the elections, one needs to appreciate the controversy generated by Labour’s missteps, especially the repeal of Britain’s lowest tax rate, the so-called “10p band”—a policy that went into effect right before the election and consequently raised taxes on some 5 million low-income earners. Labour enacted the change the previous year in the name of reforming the tax system, eliminating the 10 percent rate on annual income between £5,225 and £7,455 and taxing everyone at a 20 percent rate on the first £36,000 they earned above £5,435--which effectively raised taxes on many working class taxpayers.

Showing how little attention the party was paying to the details, Labour’s leader, Prime Minster Gordon Brown, claimed he didn’t realize how many people would pay higher taxes as a result (and still disputes estimates even by his own party members), nor did he seem to understand how ill-timed was the effective date of the tax increase—coming as it did right before the election. As the tax went into effect amidst a general economic slowdown, Brown was galloping off to the United States to meet with President Bush, only to return home to an uproar. In the month before the election, I counted more than 1,000 references by British newspapers to the 10p rate repeal and the coming elections. Needless to say, there were few supporters of the move once its impact became clear, even among Labour’s members of parliament, many of whom lobbied for repeal.

The tax hike only added to a perception that the government had grown fat at the public’s expense and out of touch with the average person. In a poll done before the election, 68 percent of the public said they were “not confident at all” in Labour’s ability to confront the U.K.’s economic problems. Another poll found that Brown’s approval rating had fallen farther than Neville Chamberlain’s did after Hitler invaded Norway in 1940.

Brown wasn’t helped by the fact that shortly before the election the British government released details of the personal spending of Members of Parliament under pressure from freedom-of-information campaigners in the U.K. The reports showed that Labour’s former deputy prime minister, John Prescott, “renowned for his prodigious appetite,” as one newspaper described him, charged the British public some £4,000 to stock his larder, while Brown claimed nearly £5,000 to have his private flat cleaned before he became Prime Minister. Voters also weren’t happy to learn that former Labour Prime Minister Tony Blair charged his annual £116 television license, one of England’s most irritating levies, to taxpayers. The exceptional spending habits of some Tory MPs, out of power for 11 years, didn’t cause quite the same stir.

The vote in London—not just in the mayor’s race, but in local districts—was especially symptomatic of what Brits are worried about these days. There, Labour lost to an unusual coalition that included those who were uneasy about the economy, mad at the tax hike, and apprehensive about increasing disorder and rising crime. The upheaval went beyond voters in the London suburbs—roughly the equivalent of New York City’s middle-class outer boroughs—who have been grousing about London’s growing social problems for some time. As one newspaper remarked, “when the suburban revolt met the fury of those hit by the 10p rate, meltdown ensued.”

Under these circumstances, the Conservative Party did not so much win the election as the extraordinarily unpopular Brown blew it. The Conservatives, for years on the outs and intellectually bankrupt under former leader Michael Howard, now have a dashing and charismatic new leader in David Cameron, but he’s still feeling his way towards an agenda. At times, on issues like taxes, he doesn’t distinguish himself much from Labour. New York Times columnist David Brooks’ notion that Americans should be learning from Cameron’s “softer” version of conservatism, with “more emphasis on environmental issues, civility, assimilation and the moral climate,’’ is belied by the fact that Cameron appears to be studying American conservatives, at least on social issues.

Writing about poverty in England shortly after the election, Cameron observed that it is “now widely accepted that it is the cycle of family breakdown, worklessness, crime, drug and alcohol abuse that traps people in deprivation,” though in reality such observations are not nearly as well accepted in the U.K. as they are here in the United States. Cameron added that Conservatives were “developing plans for radical welfare reform to help people move from long-term poverty to long-term employment.” He might have added that welfare reform is now a decade old in America. Later in the same piece, Cameron recalled Margaret Thatcher’s school choice innovations and the choice movement here in America when he promised reform of Britain’s schools by “opening up the state system to new providers.”

The Labour Party still has time to rebound before the next national elections which must be held no later than 2010, and already Brown is sounding a little like McCain—hinting, for instance, at repeal of a gas tax increase that’s set to go into effect in autumn. He’s also assigned bureaucrats to figure out how to undo the impact of the 10p repeal through tax credits and other mechanisms, though the potential solutions are probably half-again too complicated for most voters to stomach. Meanwhile, his advisers have told him to put temporarily on the backburner some of his favorite agenda items that have little to do with the economy, like trying to make Britain into a worldwide leader on environmental issues.

As the presidential candidate of the party that now holds the White House, McCain will face some of the same challenges as Brown. Although Americans do not judge Republicans as harshly on the economy as Brits judge Labour, polls show that most voters still trust the Democrats more than they do the GOP. If McCain doesn’t overcome that deficit in a year in which economic headlines dominate, it’s difficult to see how he can win, unless the Democratic Party does the job for him by making Labour-like mistakes—which is unlikely—or unless something spectacular happens to push the economy off the front page.

But betting on something like that to happen is a little like betting that voters won’t notice when you raise their taxes.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

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